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IN THE SUPREME COURT OF OHIO
WILLIAM WESTBROOK,
-vs-
Plaintiff-Appellee,
VALERIE SWIATEK, et al.,
Defendants-Appellants.
Supreme Court Case No. 09-0828
On Appeal from the Delaware CountyCourt of Appeals, Fifth AppellateDistrict
Court of Appeals Case Nos.08CAE12-0078 & 08CAE12-0079
APPELLEE WILLIAM WESTBROOK'SMEMORANDUM IN OPPOSITION TO APPELLANTS'
MOTION FOR STAY OF TRIAL COURT PROCEEDINGSTO ENFORCE ORDER PENDING APPEAL TO THIS COURT
Quintin F. Lindsmith (0018327)James P. Schuck (0072356)Natalie T. Fumiss (0075329)BRICKER & ECKLER LLP100 South Third StreetColumbus, Ohio 43215Phone: 614.227.2300Fax: [email protected]@[email protected]
Attorneys for Appellants-Defendants
t^^^ ^j 6 Z.0(^9
I,^RRV^ lll° GQlDR 1SUEME COUi, R, OF OHIO
0. Judson Scheaf, III (0040285)Scott A. Campbell (0064974)Michele L. Noble (0072756)Gabe Roehrenbeck (0078231)THOMPSON HINE LLP41 South High Street, Suite 1700Columbus, Ohio 43215Phone: 614.469.3200Fax: [email protected]@[email protected]. [email protected]
Anthony M. Heald (0002095)HEALD & LONG125 North Sandusky StreetDelaware, Ohio 43015Phone: 740.363.1369Fax: [email protected]
Attorneys for Appellee-William Westbrook
I. Introduction
This Court has already declined to accept jurisdiction in a case that is identical to this
one. See MD Acquisition, L.L. C., et al. v. Martin L. Myers et al., Ohio Supreme Court Case No.
2007-1604. In MD Acquisition, the Tenth District Court of Appeals-in an identical situation-
held that a trial court's order granting advancement of attorneys' fees to an officer of a company
pursuant to corporate bylaws was not a final, appealable order. MD Acquisition, L.L.C. v. Myers
(10th Dist.), 2007-Ohio-3521, at ¶ 14. After the Tenth District dismissed their appeal for lack of
subject-matter jurisdiction, the corporate plaintiffs sought a discretionary appeal with this Court,
and asked it to accept jurisdiction over the following proposition of law: "A pretrial order
requiring plaintiffs to advance the defendant's attorney fees up to and through the trial is a
provisional remedy that cannot be effectively corrected without immediate appeal pursuant to
O.R.C. § 2505.02(B)(4)." (See Memorandum in Support of Jurisdiction of Plaintiffs-Appellants
MD Acquisition, LLC and Martin Designs, Inc., filed August 24, 2007, at 9.) This Court
declined to accept jurisdiction. (See December 12, 2007 Entry ("Upon consideration of the
jurisdictional memoranda filed in this case, the Court declines jurisdiction to hear the case.").)
As in MD Acquisition, the trial court's order in this case simply granted Mr. Westbrook's
motion for the advancement of his litigation fees and expenses, as required by the parties'
corporate Code of Regulations. Following the MD Acquisition decision, the Fifth District Court
of Appeals dismissed the appeal for lack of a final, appealable order. The Appellants are now
asking this Court to accept jurisdiction over the very same proposition of law which this Court
refused to consider in MD Acquisition.
Perhaps more troubling is the Appellants' instant motion to stay the trial court's order.
Given that the Court has previously declined jurisdiction in an identical case, the Appellants do
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not, and cannot, provide any good reason as to why this Court should nonetheless stay the trial
court's order. Indeed, the point of corporate advancement provisions (such as the ones at issue in
this case) is to ensure the advancement of litigation expenses as they are incurred, and before the
litigation concludes. The point of the Appellants' pending motion to stay (like their already-
rejected motions to stay in the two lower courts) is to prevent Mr. Westbrook from ever enjoying
the benefit of his right to advancement-a right which the trial court has already correctly
declared that he has. If this Court grants the Appellants' motion to stay, it would have the
practical effect of allowing them to escape their advancement obligations altogether. Mr.
Westbrook would be forced to continue defending against the Appellants' counterclaims without
the fiinds to which he is legally entitled to finance that defense. This inequity of litigation
resources, which the Appellants by their motion seek to perpetuate, is exactly what corporate
advancement provisions are designed to eliminate. The Appellants' motion to stay is an
invitation to turn advancement law on its head, and this Court should reject that invitation.
Both the trial court and the Fifth District have already properly declined to stay the trial
court's order. Mr. Westbrook respectfully requests this Court to do the same.
H. Analysis
A. Procedural History Relating To The Advancement Orders.
In February 2007, August 2007, and August 2008, the Appellants filed counterclaims
against Mr. Westbrook based on actions that he allegedly took when he served as an officer of
the corporate Defendants. The Defendants' respective Codes of Regulations provided that
Mr. Westbrook was entitled to advancement of his legal fees and expenses spent in the defense
of those counterclaims. Thus, Mr. Westbrook sought, directly from the Appellants, advancement
of his fees and expenses incurred defending against the counterclaims. The Appellants refused.
That led to the following sequence of events, none of which are in dispute:
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• Au^ust 28. 2007: Mr. Westbrook moves for a hearing on an interim award of hislegal fees and expenses spent defending against the Defendants' counterclaimsfiled in the Delaware and Franklin County, Ohio Courts of Common Pleas. (SeeMotion Of William Westbrook For Hearing On Interim Award Of Legal Fees AndExpenses (the "Motion for Advancement").)
• October 2, 2008: The trial court enters the Judgment Entry Granting ThePlainttff's Motion. For Hearing On Interim Award Of Legal Fees And ExpensesAnd Judgment Entry Granting Defendant Suhoveeky's Motion For PartialSummary Judgment And Judgment Entry Setting Evidentiary Hearing OnAdvancement Of Litigation Expenses (the "October Advancement Order"), whichgrants the Motion for Advancement and sets the requested hearing for November5, 2008.
The trial court properly ruled that the Appellants' counterclaims werebased upon actions that Mr. Westbrook allegedly took as an officer of theDefendants. (October Advancement Order at 11.) The trial court further held thatthe Defendants' Code of Regulations, at Sections 5.01 and 5.05, required theDefendants to advance Mr. Westbrook his attorneys fees and expenses for thedefense of the counterclaims. (Id.)
Sections 5.01 and 5.05 of the Code of Regulations provide that any feesand expenses incurred by a director or officer in defending a civil proceedingbrought "by reason of the fact" that he is or was serving as a director or officer ofthe corporation "shall be paid by the corporation in advance of the finaldisposition of such action" if the "officer or director shall first agree, in writing, torepay all amounts so paid in respect of any claim, issue or other matter asserted insuch action, suit or proceeding in defense of which he shall not have beensuccessful on the merits or otherwise," which Mr. Westbrook did. (OctoberAdvancement Order at 5-6 (emphasis supplied).)
• November 5, 2008: The trial court conducts the hearing on the amount of feesand expenses to be advanced.
• December 10, 2008: The trial court enters the Judgment Entry Clarifying TheCourt's October 2, 2008 Judgment Entry And .Judgment Entry AwardingAdvancement Of Litigation Expenses To Westbrook, directing Defendants toadvance to Mr. Westbrook $240,952.06, on or before January 12, 2009 (the"Order To Advance").
• December 30, 2008: The Defendants appeal the Order To Advance to theDelaware County Court of Appeals, Fifth Appellate District.
• January 7, 2009: The Defendants file in the trial court their Motion To StayEnforcement Of Judgment Entry Awarding Advancement Of Litigation ExpensesTo Plaintiff Westbrook (the "Trial Court Motion To Stay").
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• January 12, 2009: Nothing happens. The Defendants neither comply with theOrder To Advance, nor obtain a stay from any Court of their obligation to obeythat order.
• February 12, 2009: The trial court enters the Judgment Entry DenyingDefendants' Motion To Stay Enforcement Of Judgment Entry Awarding
Advancement Of Litigation Expenses To Plaintiff Westbrook ("Decision DenyingStay"), rejecting all of the Defendants' arguments in their Trial Court Motion ToStay.
• February 16, 2009: Mr. Westbrook's counsel writes to defense counsel, insistingupon advancement in light of this Court's Decision Denying Stay. (SeeCorrespondence from Scott A. Campbell to Quintin F. Lindsmith, dated February16, 2009.) The Defendants never respond.
. February 18, 2009: The Defendants move the Delaware County Court ofAppeals, Fifth Appellate District, to stay enforcement of the Order To Advance(the "Appeals Court Motion To Stay").
• April 13, 2009: In Case Nos. 08-CAE-12-0078 and 08-CAE-12-0079, theDelaware County Court of Appeals, Fifth Appellate District, enters a JudgmentEntry (a) dismissing Defendants' appeal for lack of subject matter jurisdiction,and (b) dismissing as moot Defendants' Appeals Court Motion To Stay, in light ofthe absence of subject matter jurisdiction.
. April 30, 2009: The trial court issues its Judgment Entry Scheduling Show Cause
Hearing, in which the trial court ordered the Defendants to appear at a hearing onMay 13, 2009 to show cause as to why they should not be held in contempt forfailing to obey the Order To Advance.
• Today: Twenty months since his initial motion, and two years after the firstcounterclaim was asserted, the Defendants have not advanced Mr. Westbrook asingle penny for the defense of the counterclaims. I
This Court should reject the Appellants' latest attempt to further delay the advancement
to which he is entitled.
1 In the interest of minimizing bulk, and because the facts are not disputed, Mr. Westbrook didnot attach the numerous motions, decisions, and other documents referenced in this timeline. Tothe extent the Court would like to review these filings, all of them are available Delaware CountyClerk's website, at http://wvnw.delawarecountyclerk.org/pa.urd/pamw6500.display.Alternatively, Mr. Westbrook will gladly provide them to this Court at its request.
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B. The Advancement Orders Are Not Final Appealable Orders.
This Court should deny the motion to stay because, as the Fifth District properly held, the
interlocutory orders from which the Appellants purport to appeal are not final, appealable orders.
Westbrook v. Swiatek (Apr. 13, 2009), 5th Dist. App. Nos. 08CAE-12-0078 and 08CAE-12-
0079.
In dismissing the Appellants' appeal, the Fifth District properly applied the case of MD
Acquisition, L.L.C. v. Myers, 2007-Ohio=3521, in which the Tenth District Court of Appeals-in
an identical situation-held that a trial couit's order granting advancement of attorneys fees to an
officer pursuant to corporate bylaws was not a final appealable order. Id ¶ 14. Specifically, the
appeals court held that the trial court's judgment "requiring advancement by appellants of
[appellee's] litigation expenses in the underlying case is neither an order that affects a substantial
right in the action and in effect determines the action nor an order granting a provisional remedy
that prevents a subsequent judgment in the action in favor to the appealing party with respect to
the provisional remedy." Id ¶ 14.
Indeed, in the trial court's Order denying the Appellants' motion to stay, the court
properly observed that, "in reviewing the case law provided by the parties in briefing the issue of
advancement of litigation fees, it is the Court's position that the December 10, 2008 Judgment
Entry Awarding Advancement of Litigation Expenses to Westbrook is not a final appealable
order." The orders appealed from do not determine Mr. Westbrook's action and/or prevent a
judgment in the Appellants' favor, and instead leave issues unresolved and contemplate that
further action must be taken.
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C. Delaying Further Mr. Westbrook's Right To Advancement Is Inimical ToThe Strong Public Policy Behind Advancement Provisions.
As the trial court properly explained, there are strong and compelling public policy
reasons to enforce advancement provisions and require the immediate funding of litigation costs.
(See October Advancement Order at 10.) Specifically, "[a]dvancement provides corporate
officials with immediate interim relief from the personal out-of-pocket financial burden of
paying the significant on-going expenses inevitably involved with investigations and legal
proceedings." Id. (emphasis added) (citing to Homestore, Inc. v. Tafeen (Del. 2005), 888 A.2d
204, 211). Here, in February and August 2007, the Appellants filed counterclaims and amended
counterclaims against Mr. Westbrook-counterclaims which are still pending (other than those
counterclaims which the trial court has already properly dismissed). Although the trial court has
held that Mr. Westbrook is entitled to advance payment of his attorneys fees in defending those
counterclaims, and specifically ordered the Appellants to make such advancement by
January 12, 2009, the Appellants have yet to advance Mr. Westbrook one penny of the several
hundred thousand dollars which he has incurred defending those claims. The very purpose of
advancement provisions is the up-front advancement of litigation costs.
Moreover, Mr. Westbrook agreed to repay any amounts advanced should it ultimately be
determined that advancement was improper. (See October Advancement Order at 12
("Westbrook executed an `Assurance of Repayment' at that time, in which he agreed to repay all
amounts paid to him pursuant to the terms provided in Section 5.05 in the Code of
Regulations.").) Thus, the Appellants are fully and adequately protected by Mr. Westbrook's
promise to repay any amounts advanced to him in the event of a judicial finding (in the form
identified in the corporate bylaws) that he should be required to do so. Indeed, in their corporate
bylaws, the Appellants specifically contemplated that defense expenses would be advanced
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before the end of litigation, and that an advancement order might be subject to reversal; and they
provided themselves with a remedy in that event (i.e., the ability to enforce an assurance of
repayment). The instant motion is another effort to renege on that commitment, vitiating the
right altogether.
The case law which the Appellants cite in support of their stay request has no relation to a
court's consideration of a stay of an order advancing attorneys' fees. They argue at considerable
length that this Court can stay the order-which they have disobeyed for four months-without
ever explaining why the Court should do so. In fact, courts have denied motions to stay
advancement orders because of the very important public policy purpose which advancement
promises serve. See Homestore, Inc. v. Tafeen (Del. Ch. 2005), 886 A.2d 502. In Homestore,
the Delaware Chancery Court held that the plaintiff was entitled to the immediate payment of
more than $3.9 million pursuant to a corporate advancement provision. Id. at 503. The
defendant appealed and filed a motion to stay the advancement order with the trial court, which
motion the trial court promptly denied. Id. The defendant then applied to the appellate court for
a stay. Id. The appeals court recognized that "to further delay its advancement obligations
would be inimical to the public policy of affording advancement" and denied the motion for
a stay. Id. (emphasis added). The best solution was to allow the plaintiff "to claim the
advancement that is due to him, and if on appeal the Supreme Court believes that he was not
entitled to such monies, then he then be required to pay such monies back." Id.; see also United
States v. Stein (S.D.N.Y. 2006), 452 F. Supp.2d 230, 273 ("If a right to advancement of defense
costs exists, the inherent nature of the right is to receive the funds as the defense costs are
incurred. Postponement of determination whether such a right exists would render the right
meaningless. By the time a decision were reached, the underlying proceeding would be over-
8
the occasion for advancing defense costs would have passed and its purpose would have been
defeated.").
A stay would effectively eviscerate Mr. Westbrook's right to advancement and deprive
him of litigation funds to which the trial court has found he is entitled under the Appellants'
corporate bylaws.
D. The Appellants Have Never Even Offered To Post An Adequate SupersedeasBond.
As this Court explained in State, ex rel. Ocasek v. Riley (1978), 54 Ohio St.2d 488, 490,
and as the Appellants themselves admit in their motion to stay (at 6), Ohio law requires them to
post an "adequate" supersedeas bond. The Appellants have failed to post any bond
whatsoever-either in the trial court, in the Fifth District, or in this Court. To date, the
Appellants have not even offered to post an adequate bond. Instead, they have suggested that
they supposedly have assets to pay the orders at the conclusion of their (improper) appeal;
alternately, they have suggested that they will post a "nominal" bond.
This discussion of the bond and the Appellants' incredible wealth, which discussion
consumes most of their motion, misses the point entirely. Tellingly, the Appellants cite to no
case anywhere in America where a court ordered a bond as a substitute for advancement. Here,
the trial court properly recognized that no amount of a supersedeas bond is adequate, as any
bond no matter how high, would eviscerate the very purpose of Mr. Westbrook's advancement
right. By the time this Court ultimately rules, the remaining proceedings will likely be at an end.
The occasion for advancing defense costs to Mr. Westbrook will have passed and its purpose will
have been defeated.
Indeed, as explained in the Homestore decision, a supersedeas bond pending appeal of an
advancement order is insufficient because a bond does not address the "irreparable harm to [the
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^laintiffJ because, by delayinfz payment, it would eliminate the value of advancement (as
opposed to indemnification) altogether." Homestore, Inc., 888 A.2d at 505 (emphasis added).
The Appellants simply ignore this effect of a stay and wrongly contend that no supersedeas bond
should be required because the Appellants have assets to pay the orders at the conclusion of their
(improper) appeal. (Motion to Stay at 6-7.) That argument is ironic. The very objective of an
advancement order is to provide for the up-front payment of litigation expenses; when. a lawsuit
is brought by the corporation itself, the advancement provision prevents the corporation from
using its deep pockets to wear down corporate officers. See Stifel Fin. Corp, v. Cochran (Del.
2002), 809 A.2d 555, 561 (holding that courts should give "full effect" to indemnification
provisions to prevent "a corporation from using its `deep pockets' to wear down a former
director, with a valid claim to indemnification, through expensive litigation").
The Appellants ask this Court to consider their own financial assets-their deep
pockets-as the reason why they should not be required to advance the fees. As the Stifel court
explained, however, the very purpose of an advancement provision is to erase the competitive
imbalance in favor of those with dramatically deeper pockets-not to perpetuate that competitive
imbalance, as the Appellants ask this Court to do.
III. Conclusion
Mr. Westbrook seeks only those rights promised to him under the clear language in the
companies' regulations-advancement of his litigation expenses, and as the trial court has
already held. Granting a stay of the trial court's advancement order would allow the Appellants
to evade their own corporate bylaws. The Court should reject the Appellants' motion to stay.
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Respectfully submitted,
l. ^
0. Judson Scheaf, III (0040285)Scott A. Campbell (0064974)Michele L. Noble (0072756)Gabe Roehrenbeck (0078231)THOMPSON HINE LLP41 South High Street, Suite 1700Columbus, Ohio 43215-3435Phone: 614.469.3200Fax: 614.469.3361
Anthony M. Heald (0002095)HEALD & LONG125 North Sandusky StreetDelaware, Ohio 43015Phone: 740.363.1369Fax: 740.369.1616
Attorneys for Appellee William Wes•tbrook
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CERTIFICATE OF SERVICE
I hereby certify that on the 6th day of May, 2009, a copy of the foregoing was served by
regular U.S. Mail, postage pre-paid, upon the following:
Quintin LindsmithNatalie FumissBricker & Eckler LLP100 South Third StreetColttmbus, Ohio [email protected]@bricker.com
Attorneys for Appellants
Robert M. Kincaid, Jr.Rodger EckelberryBaker & Hostetler65 East State StreetColumbus, Ohio 43215
Attorney for Michael Suhovecky
An Attorney for Appellee
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